Welcome to the CCH/TEO Question and Answer Service Question of the Week
Question: Land owner acquiring property from co-owners: does bright-line test apply?
In 2016, Jeff wanted to purchase a residential rental property. He was unable to secure adequate finance for the property purchase and approached his parents (Roger and Mary) to assist with the purchase. Consequently, the property purchase went ahead and was registered in the legal names of Jeff, Roger and Mary, with ownership split equally three ways (33.33% each).
It was always the intention that when Jeff was able to do so, he would refinance the property solely into his own name. He is now in the financial position to do this, and his parents are keen to transfer the title solely to him.
1. Would the transfer of the property from the current title to solely Jeff trigger a restart in the bright-line period?
2. Would the answer change if ownership of the property was as joint tenants rather than as tenants in common in equal shares?
1. The bright-line period would not restart for Jeff’s initial 33.33% portion of the property, as he has not disposed of this.
However, the title for the remaining 66.66% held by Jeff’s parents will be disposed of once transferred to Jeff. Jeff is treated as acquiring Roger and Mary’s share of the property on the date the new title is registered.
This means that should Jeff dispose of the property within 10 years of the new title being registered, two-thirds of the property would trigger the bright-line test.
2. The answer would not be different if ownership of the property was as joint tenants.
The only scenario that would differ under joint ownership would be where one of the parties died, in which case the property title automatically reverts to the survivors of the joint tenancy.
Income Tax Act 2007, s CB 6A.
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